##### Table of Contents



UNITED
STATESSECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended: December 24, 2005
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number: 000-03905
 TRANSCAT, INC.
  Ohio
    
    16-0874418(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 35 Vantage Point Drive, Rochester, New York 14624
 (585) 352-7777
 þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
 o þ




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##### 



Page(s)PART I.
    
    FINANCIAL INFORMATIONItem 1.
    
    Consolidated Financial Statements (unaudited):Consolidated Statements of Operations and Comprehensive Income (Loss) for the Third Quarter and Nine Months Ended December 24, 2005 and December 25, 2004
    
    3Consolidated Balance Sheets as of December 24, 2005 and March 26, 2005
    
    4Consolidated Statements of Cash Flows for the Nine Months Ended December 24, 2005 and December 25, 2004
    
    5Consolidated Statements of Stockholders Equity for the Nine Months Ended December 24, 2005
    
    6Notes to Consolidated Financial Statements
    
    7-14Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    15-26Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    27-29Item 4.
    
    Controls and Procedures
    
    29PART II.
    
    OTHER INFORMATIONItem 6.
    
    Exhibits
    
    29SIGNATURES
    
    30INDEX TO EXHIBITS
    
    31EX-31.1 Certification of CEOEX-31.2 Certification of CFOEX-32.1 Certification of CEO and CFO
  2




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##### Table of Contents



TRANSCAT, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
  (Unaudited)
    
    
    (Unaudited)Third Quarter Ended
    
    
    Nine Months EndedDecember
    
    
    December
    
    
    December
    
    
    December24, 2005
    
    
    25, 2004
    
    
    24, 2005
    
    
    25, 2004Product Sales
    
    $
    11,500
    
    
    $
    9,856
    
    
    $
    30,297
    
    
    $
    27,028Service Sales
    
    
    4,733
    
    
    
    4,184
    
    
    
    14,120
    
    
    
    12,722Net Sales
    
    
    16,233
    
    
    
    14,040
    
    
    
    44,417
    
    
    
    39,750Cost of Products Sold
    
    
    8,704
    
    
    
    7,530
    
    
    
    22,917
    
    
    
    20,821Cost of Services Sold
    
    
    3,674
    
    
    
    2,992
    
    
    
    10,431
    
    
    
    9,376Total Cost of Products and Services Sold
    
    
    12,378
    
    
    
    10,522
    
    
    
    33,348
    
    
    
    30,197Gross Profit
    
    
    3,855
    
    
    
    3,518
    
    
    
    11,069
    
    
    
    9,553Selling, Marketing, and Warehouse Expenses
    
    
    2,256
    
    
    
    1,946
    
    
    
    6,199
    
    
    
    5,752Administrative Expenses
    
    
    1,178
    
    
    
    1,162
    
    
    
    3,607
    
    
    
    3,580Total Operating Expenses
    
    
    3,434
    
    
    
    3,108
    
    
    
    9,806
    
    
    
    9,332Operating Income
    
    
    421
    
    
    
    410
    
    
    
    1,263
    
    
    
    221Interest Expense
    
    
    98
    
    
    
    89
    
    
    
    321
    
    
    
    234Other Expense
    
    
    34
    
    
    
    49
    
    
    
    130
    
    
    
    235Total Other Expense
    
    
    132
    
    
    
    138
    
    
    
    451
    
    
    
    469Income (Loss) Before Income Taxes
    
    
    289
    
    
    
    272
    
    
    
    812
    
    
    
    (248
    )Provision for Income Taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net Income (Loss)
    
    
    289
    
    
    
    272
    
    
    
    812
    
    
    
    (248
    )Other Comprehensive Income:Currency Translation Adjustment
    
    
    12
    
    
    
    64
    
    
    
    92
    
    
    
    148Comprehensive Income (Loss)
    
    $
    301
    
    
    $
    336
    
    
    $
    904
    
    
    $
    (100
    )Basic Earnings (Loss) Per Share
    
    $
    0.04
    
    
    $
    0.04
    
    
    $
    0.12
    
    
    $
    (0.04
    )Average Shares Outstanding (in thousands)
    
    
    6,682
    
    
    
    6,414
    
    
    
    6,611
    
    
    
    6,371Diluted Earnings (Loss) Per Share
    
    $
    0.04
    
    
    $
    0.04
    
    
    $
    0.11
    
    
    $
    (0.04
    )Average Shares Outstanding (in thousands)
    
    
    7,288
    
    
    
    6,979
    
    
    
    7,196
    
    
    
    6,371
  3




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##### Table of Contents



TRANSCAT, INC.
 
 CONSOLIDATED BALANCE SHEETS
  (Unaudited)December
    
    
    March24, 2005
    
    
    26, 2005ASSETSCurrent Assets:Cash
    
    $
    138
    
    
    $
    106Accounts Receivable, less allowance for doubtful accounts of $64
and $56 as of December 24, 2005 and March 26, 2005, respectively
    
    
    8,003
    
    
    
    8,089Other Receivables
    
    
    175
    
    
    
    313Finished Goods Inventory, net
    
    
    5,597
    
    
    
    5,902Prepaid Expenses and Deferred Charges
    
    
    1,073
    
    
    
    630Total Current Assets
    
    
    14,986
    
    
    
    15,040Property, Plant and Equipment, net
    
    
    2,028
    
    
    
    1,984Capital Leases, net
    
    
    66
    
    
    
    115Goodwill
    
    
    2,524
    
    
    
    2,524Prepaid Expenses and Deferred Charges
    
    
    133
    
    
    
    188Other Assets
    
    
    269
    
    
    
    261Total Assets
    
    $
    20,006
    
    
    $
    20,112LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts Payable
    
    $
    5,456
    
    
    $
    4,544Accrued Payrolls, Commissions, and Other
    
    
    1,786
    
    
    
    2,031Income Taxes Payable
    
    
    88
    
    
    
    100Current Portion of Term Loan
    
    
    758
    
    
    
    758Current Portion of Capital Lease Obligations
    
    
    71
    
    
    
    66Revolving Line of Credit
    
    
    4,033
    
    
    
    5,498Total Current Liabilities
    
    
    12,192
    
    
    
    12,997Term Loan, less current portion
    
    
    429
    
    
    
    1,020Capital Lease Obligations, less current portion
    
    
    3
    
    
    
    56Deferred Compensation
    
    
    125
    
    
    
    181Deferred Gain on TPG Divestiture
    
    
    1,544
    
    
    
    1,544Total Liabilities
    
    
    14,293
    
    
    
    15,798Stockholders Equity:Common Stock, par value $0.50 per share, 30,000,000 shares authorized;
6,938,011 and 6,700,505 shares issued as of December 24, 2005 and
March 26, 2005, respectively; 6,690,747 and 6,453,241 shares
outstanding as of December 24, 2005 and March 26, 2005, respectively
    
    
    3,469
    
    
    
    3,350Capital in Excess of Par Value
    
    
    4,481
    
    
    
    3,995Warrants
    
    
    329
    
    
    
    430Unearned Compensation
    
    
    (26
    )
    
    
    (17
    )Accumulated Other Comprehensive Gain
    
    
    188
    
    
    
    96Accumulated Deficit
    
    
    (1,890
    )
    
    
    (2,702
    )Less: Treasury Stock, at cost, 247,264 shares as of December 24, 2005 and March 26, 2005, respectively
    
    
    (838
    )
    
    
    (838
    )Total Stockholders Equity
    
    
    5,713
    
    
    
    4,314Total Liabilities and Stockholders Equity
    
    $
    20,006
    
    
    $
    20,112
  4




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##### Table of Contents



TRANSCAT, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
  (Unaudited)Nine Months EndedDecember
    
    
    December24, 2005
    
    
    25, 2004Cash Flows from Operating Activities:Net Income (Loss)
    
    $
    812
    
    
    $
    (248
    )Adjustments to Reconcile Net Income (Loss) to Net
Cash Provided by Operating Activities:Depreciation and Amortization
    
    
    1,009
    
    
    
    1,131Provision for Doubtful Accounts Receivable
    
    
    8
    
    
    
    (6
    )Provision for Returns
    
    
    (3
    )
    
    
    Provision for Slow Moving or Obsolete Inventory
    
    
    6
    
    
    
    (8
    )Common Stock Expense
    
    
    78
    
    
    
    170Amortization of Unearned Compensation
    
    
    35
    
    
    
    117Changes in Assets and Liabilities:Accounts Receivable and Other Receivables
    
    
    306
    
    
    
    1,445Inventories
    
    
    299
    
    
    
    (1,744
    )Income Taxes Receivable / Payable
    
    
    (12
    )
    
    
    144Prepaid Expenses, Deferred Charges, and Other
    
    
    (796
    )
    
    
    (517
    )Accounts Payable
    
    
    912
    
    
    
    362Accrued Payrolls, Commissions, and Other
    
    
    (245
    )
    
    
    (531
    )Deferred Compensation
    
    
    (27
    )
    
    
    (28
    )Net Cash Provided by Operating Activities
    
    
    2,382
    
    
    
    287Cash Flows from Investing Activities:Purchase of Property, Plant and Equipment
    
    
    (604
    )
    
    
    (512
    )Net Cash Used in Investing Activities
    
    
    (604
    )
    
    
    (512
    )Cash Flows from Financing Activities:Revolving Line of Credit, net
    
    
    (1,465
    )
    
    
    (1,695
    )Payments on Term Loans
    
    
    (591
    )
    
    
    (723
    )Payments on Term Loan Borrowings
    
    
    
    
    
    
    2,000Payments on Capital Leases
    
    
    (48
    )
    
    
    (44
    )Issuance of Common Stock
    
    
    353
    
    
    
    124Net Cash Used in Financing Activities
    
    
    (1,751
    )
    
    
    (338
    )Effect of Exchange Rate Changes on Cash
    
    
    5
    
    
    
    147Net Increase (Decrease) in Cash
    
    
    32
    
    
    
    (416
    )Cash at Beginning of Period
    
    
    106
    
    
    
    547Cash at End of Period
    
    $
    138
    
    
    $
    131Supplemental
Disclosure of Non-Cash Financing Activity:Expiration of Warrants from Debt Retirement
    
    $
    101
    
    
    $
    88Non-Cash Issuance of Common Stock
    
    $
    63
    
    
    $
    Disposal of Fully Reserved Obsolete Inventory
    
    $
    93
    
    
    $
    Treasury Stock Acquired in Cashless Exercise of Stock Options
    
    $
    
    
    
    $
    385
  5




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##### Table of Contents



TRANSCAT, INC.
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
  Accum-Capital
    
    
    
    
    
    
    Un-
    
    
    ulatedCommon Stock
    
    
    In
    
    
    
    
    
    
    earned
    
    
    Other
    
    
    
    
    
    
    Treasury StockOutstanding
    
    
    Excess
    
    
    
    
    
    
    Comp-
    
    
    Compre-
    
    
    Accum-
    
    
    Outstanding$0.50 Par Value
    
    
    of Par
    
    
    War-
    
    
    ensa-
    
    
    hensive
    
    
    ulated
    
    
    at CostShares
    
    
    Amount
    
    
    Value
    
    
    rants
    
    
    tion
    
    
    Gain
    
    
    Deficit
    
    
    Shares
    
    
    Amount
    
    
    TotalBalance as of March 26, 2005
    
    
    6,453
    
    
    $
    3,350
    
    
    $
    3,995
    
    
    $
    430
    
    
    $
    (17
    )
    
    $
    96
    
    
    $
    (2,702
    )
    
    
    247
    
    
    $
    (838
    )
    
    $
    4,314Issuance of Common Stock
    
    
    203
    
    
    
    102
    
    
    
    314
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    416Restricted Stock:Issuance of Restricted Stock
    
    
    35
    
    
    
    17
    
    
    
    71
    
    
    
    
    
    
    
    (44
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44Amortization of Unearned
Compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35Expired Warrants
    
    
    
    
    
    
    
    
    
    
    101
    
    
    
    (101
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Comprehensive Income:Currency Translation
Adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    92
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    92Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    812
    
    
    
    
    
    
    
    
    
    
    
    812Balance as of December 24, 2005
    
    
    6,691
    
    
    $
    3,469
    
    
    $
    4,481
    
    
    $
    329
    
    
    $
    (26
    )
    
    $
    188
    
    
    $
    (1,890
    )
    
    
    247
    
    
    $
    (838
    )
    
    $
    5,713
  6




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##### Table of Contents



TRANSCAT, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  NOTE 1  NATURE OF BUSINESS AND BASIS OF PRESENTATION
 Description of Business:
 Basis of Presentation:
 NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Principles of Consolidation:
 Use of Estimates:
 Changes in Estimates:
 Fiscal Year:
 Revenue Recognition:
 Shipping and Handling Costs:
 Rebates:
 7




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##### Table of Contents



Cooperative Advertising Income:
 Comprehensive Income:
 Currency Translation Adjustment:
  Earnings Per Share:
  Third Quarter Ended
    
    
    Nine Months EndedDecember
    
    
    December
    
    
    December
    
    
    December24, 2005
    
    
    25, 2004
    
    
    24, 2005
    
    
    25, 2004Shares Outstanding:Dilutive
    
    
    606
    
    
    
    565
    
    
    
    585
    
    
    
    Anti-dilutive
    
    
    409
    
    
    
    722
    
    
    
    430
    
    
    
    743Total
    
    
    1,015
    
    
    
    1,287
    
    
    
    1,015
    
    
    
    743Range of Exercise Prices per Share:Options
    
    $
    0.80-$4.52
    
    
    $
    0.80-$3.00
    
    
    $
    0.80-$4.52
    
    
    $
    0.80-$3.00Warrants
    
    $
    0.97-$4.26
    
    
    $
    0.97-$2.91
    
    
    $
    0.97-$4.26
    
    
    $
    0.97-$2.91
 Accounts Receivable:
 Inventory:
 8




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##### Table of Contents



Properties, Depreciation, and Amortization:
 Goodwill:
 Deferred Catalog Costs:
 Deferred Compensation:
  Deferred Gain on TPG:
 Deferred Taxes:
 Fair Value of Financial Instruments:
 
    
    Cash, Accounts Receivables, and Accounts Payables: The carrying amounts reported on the
Consolidated Balance Sheets for cash, accounts receivables, and accounts payables
approximate fair value, due to their short-term nature.
    
    Debt: The carrying amount of debt under the Credit Agreement, as such term is defined
in Note 3 to the Consolidated Financial Statements, approximates fair value due to variable
interest rate pricing.
 9




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##### Table of Contents



Stock Options:
  Third Quarter Ended
    
    
    Nine Months EndedDecember
    
    
    December
    
    
    December
    
    
    December24, 2005
    
    
    25, 2004
    
    
    24, 2005
    
    
    25, 2004Net Income (Loss), as reported
    
    $
    289
    
    
    $
    272
    
    
    $
    812
    
    
    $
    (248
    )Add: Stock-based employee compensation expense
included in reported net income (loss), net of related
tax effects
    
    
    45
    
    
    
    116
    
    
    
    113
    
    
    
    214Deduct: Total stock-based employee compensation expense
determined under fair value based method for all
awards,
net of related tax effects
    
    
    (95
    )
    
    
    (174
    )
    
    
    (263
    )
    
    
    (387
    )Pro Forma Net Income (Loss)
    
    $
    239
    
    
    $
    214
    
    
    $
    662
    
    
    $
    (421
    )Earnings (Loss) Per Share:Basic  as reported
    
    $
    0.04
    
    
    $
    0.04
    
    
    $
    0.12
    
    
    $
    (0.04
    )Basic  pro forma
    
    $
    0.04
    
    
    $
    0.03
    
    
    $
    0.10
    
    
    $
    (0.07
    )Average Shares Outstanding
    
    
    6,682
    
    
    
    6,414
    
    
    
    6,611
    
    
    
    6,371Diluted  as reported
    
    $
    0.04
    
    
    $
    0.04
    
    
    $
    0.11
    
    
    $
    (0.04
    )Diluted  pro forma
    
    $
    0.03
    
    
    $
    0.03
    
    
    $
    0.09
    
    
    $
    (0.07
    )Average Shares Outstanding
    
    
    7,288
    
    
    
    6,979
    
    
    
    7,196
    
    
    
    6,371
 10




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##### Table of Contents



NOTE 3  DEBT
 Description.
    Term Loans.
 Principal Payments After GivingEffect to Excess Cash Flow PaymentsTerm Loan A
    
    
    Term Loan B
    
    
    TotalFiscal Year 2006 (1)
    
    
    125
    
    
    
    132
    
    
    
    257Fiscal Year 2007
    
    
    500
    
    
    
    97
    
    
    
    597Fiscal Year 2008
    
    
    333
    
    
    
    
    
    
    
    333Total
    
    $
    958
    
    
    $
    229
    
    
    $
    1,187
 
 (1)
    
    On the Consolidated Balance Sheets as of December 24, 2005, the $0.8 million current
portion of term loan consists of $0.7 million from principal term loan payments for the
remaining three months of fiscal year 2006 and for the first nine months of fiscal year 2007;
and, $0.1 million from estimated excess cash flow payments. LOC.
  11




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##### Table of Contents



Interest.
 Fixed ChargeTier
    
    Coverage Ratio
    
    Term Loan A
    
    Term Loan B
    
    LOC1
    
    1.249 or less
    
    (a) Prime Rate plus .50% or
    
    Prime Rate plus .75%
    
    (a) Prime Rate plus 0% or(b) LIBOR plus 3.25%
    
    
    
    (b) LIBOR plus 2.75%2
    
    1.25 to 1.49
    
    (a) Prime Rate plus .25% or
    
    Prime Rate plus .50%
    
    (a) Prime Rate plus 0% or(b) LIBOR plus 3.00%
    
    
    
    (b) LIBOR plus 2.50%3
    
    1.50 or greater
    
    (a) Prime Rate plus 0% or
    
    Prime Rate plus .25%
    
    (a) Prime Rate plus 0% or(b) LIBOR plus 2.75%
    
    
    
    (b) LIBOR plus 2.25%
 Covenants.
 Loan Costs.
 Other Terms.
   12




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##### Table of Contents



NOTE 4
 SEGMENT AND GEOGRAPHIC DATA
  Third Quarter Ended
    
    
    Nine Months EndedDecember
    
    
    December
    
    
    December
    
    
    December24, 2005
    
    
    25, 2004
    
    
    24, 2005
    
    
    25, 2004Net Sales:Product
    
    $
    11,500
    
    
    $
    9,856
    
    
    $
    30,297
    
    
    $
    27,028Service
    
    
    4,733
    
    
    
    4,184
    
    
    
    14,120
    
    
    
    12,722Total
    
    
    16,233
    
    
    
    14,040
    
    
    
    44,417
    
    
    
    39,750Gross Profit:Product
    
    
    2,796
    
    
    
    2,326
    
    
    
    7,380
    
    
    
    6,207Service
    
    
    1,059
    
    
    
    1,192
    
    
    
    3,689
    
    
    
    3,346Total
    
    
    3,855
    
    
    
    3,518
    
    
    
    11,069
    
    
    
    9,553Operating Expenses:Product
    
    
    2,095
    
    
    
    2,003
    
    
    
    5,794
    
    
    
    5,851Service
    
    
    1,339
    
    
    
    1,105
    
    
    
    4,012
    
    
    
    3,481Total
    
    
    3,434
    
    
    
    3,108
    
    
    
    9,806
    
    
    
    9,332Operating Income (Loss):Product
    
    
    701
    
    
    
    323
    
    
    
    1,586
    
    
    
    356Service
    
    
    (280
    )
    
    
    87
    
    
    
    (323
    )
    
    
    (135
    )Total
    
    
    421
    
    
    
    410
    
    
    
    1,263
    
    
    
    221Unallocated Amounts:Other Expense (including
interest)
    
    
    132
    
    
    
    138
    
    
    
    451
    
    
    
    469Provision for Income Taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    132
    
    
    
    138
    
    
    
    451
    
    
    
    469Net Income (Loss)
    
    $
    289
    
    
    $
    272
    
    
    $
    812
    
    
    $
    (248
    )
 13




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##### Table of Contents



NOTE 5
 COMMITMENTS
 Unconditional Purchase Obligation:
  NOTE 6  VENDOR CONCENTRATION
  14




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Forward-Looking Statements.
 Rounding.
 CRITICAL ACCOUNTING POLICIES AND ESTIMATES
 Use of Estimates:
 Changes in Estimates:
 Revenue Recognition:
 Accounts Receivable:
 Inventory:
 15




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##### Table of Contents



Properties, Depreciation, and Amortization:
 Goodwill:
 Deferred Catalog Costs:
 Deferred Gain on TPG:
 Deferred Taxes:
 Stock Options:
 Off-Balance Sheet Arrangements:
 16




---



##### Table of Contents



RESULTS OF OPERATIONS
  (Unaudited)
    
    
    (Unaudited)Third Quarter Ended
    
    
    Nine Months EndedDecember
    
    
    December
    
    
    December
    
    
    December24, 2005
    
    
    25, 2004
    
    
    24, 2005
    
    
    25, 2004As a Percentage of Net Sales:Product Sales
    
    
    70.8
    %
    
    
    70.2
    %
    
    
    68.2
    %
    
    
    68.0
    %Service Sales
    
    
    29.2
    %
    
    
    29.8
    %
    
    
    31.8
    %
    
    
    32.0
    %Net Sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Product Gross Profit
    
    
    24.3
    %
    
    
    23.6
    %
    
    
    24.4
    %
    
    
    23.0
    %Service Gross Profit
    
    
    22.4
    %
    
    
    28.5
    %
    
    
    26.1
    %
    
    
    26.3
    %Total Gross Profit
    
    
    23.7
    %
    
    
    25.1
    %
    
    
    24.9
    %
    
    
    24.0
    %Selling, Marketing, and Warehouse Expenses
    
    
    13.9
    %
    
    
    13.9
    %
    
    
    14.0
    %
    
    
    14.5
    %Administrative Expenses
    
    
    7.3
    %
    
    
    8.3
    %
    
    
    8.1
    %
    
    
    9.0
    %Total Operating Expenses
    
    
    21.2
    %
    
    
    22.2
    %
    
    
    22.1
    %
    
    
    23.5
    %Operating Income (Loss)
    
    
    2.5
    %
    
    
    2.9
    %
    
    
    2.8
    %
    
    
    0.5
    %Interest Expense
    
    
    0.6
    %
    
    
    0.6
    %
    
    
    0.7
    %
    
    
    0.6
    %Other Expense
    
    
    0.2
    %
    
    
    0.3
    %
    
    
    0.3
    %
    
    
    0.6
    %Total Other Expense
    
    
    0.8
    %
    
    
    0.9
    %
    
    
    1.0
    %
    
    
    1.2
    %Income (Loss) Before Income Taxes
    
    
    1.7
    %
    
    
    2.0
    %
    
    
    1.8
    %
    
    
    (0.7
    )%Provision for Income Taxes
    
    
    
    %
    
    
    
    %
    
    
    
    %
    
    
    
    %Net Income (Loss)
    
    
    1.7
    %
    
    
    2.0
    %
    
    
    1.8
    %
    
    
    (0.7
    )%
 17




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##### Table of Contents



THIRD QUARTER ENDED DECEMBER 24, 2005 COMPARED TO THIRD QUARTER ENDED DECEMBER 25, 2004
(dollars in millions):
 Sales:
 Third Quarter EndedDecember
    
    
    December24, 2005
    
    
    25, 2004Net Sales:Product
    
    $
    11.5
    
    
    $
    9.9Service
    
    
    4.7
    
    
    
    4.2Total
    
    $
    16.2
    
    
    $
    14.1
   FY 2006
    
    
    FY 2005Q3
    
    Q2
    
    Q1
    
    
    Q4
    
    Q3
    
    Q2
    
    Q1Product Sales Growth (Decline)
    
    
    16.2
    %
    
    
    13.3
    %
    
    
    5.6
    %
    
    
    
    (2.9
    %)
    
    
    6.5
    %
    
    
    9.2
    %
    
    
    11.3
    %
  FY 2006 Third Quarter
    
    
    FY 2005 Third Quarter (1)Percent of
    
    Gross
    
    
    Percent of
    
    GrossNet Sales
    
    Profit % (2)
    
    
    Net Sales
    
    Profit % (2)Core
    
    
    84.5
    %
    
    
    25.8
    %
    
    
    
    87.4
    %
    
    
    24.7
    %Government
    
    
    3.1
    %
    
    
    0.0
    %
    
    
    
    2.0
    %
    
    
    3.7
    %Other
    
    
    12.4
    %
    
    
    14.2
    %
    
    
    
    10.6
    %
    
    
    14.1
    %Total
    
    
    100.0
    %
    
    
    23.6
    %
    
    
    
    100.0
    %
    
    
    23.1
    %
 
 (1)
    
    Certain prior year customer reclassifications have been made to conform with current channel definitions.(2)
    
    Calculated at net sales less purchase costs. 18




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##### Table of Contents



FY 2006
    
    
    FY 2005Q3
    
    Q2
    
    Q1
    
    
    Q4
    
    Q3
    
    Q2
    
    Q1Total Unshippable
Product Orders
    
    $
    1.3
    
    
    $
    1.5
    
    
    $
    1.3
    
    
    
    $
    1.3
    
    
    $
    1.3
    
    
    $
    1.5
    
    
    $
    1.5% of Unshippable
Product Orders
that are Backorders
    
    
    84.6
    %
    
    
    72.1
    %
    
    
    78.7
    %
    
    
    
    76.9
    %
    
    
    76.9
    %
    
    
    80.0
    %
    
    
    80.2
    %
  FY 2006
    
    
    FY 2005Q3
    
    Q2
    
    Q1
    
    
    Q4
    
    Q3
    
    Q2
    
    Q1Service Sales Growth (Decline)
    
    
    11.9
    %
    
    
    11.9
    %
    
    
    6.8
    %
    
    
    
    14.6
    %
    
    
    0.0
    %
    
    
    (2.3
    %)
    
    
    (4.3
    %)
 Gross Profit:
 Third Quarter EndedDecember
    
    
    December24, 2005
    
    
    25, 2004Gross Profit:Product
    
    
    
    
    
    $
    2.8
    
    
    $
    2.3Service
    
    
    
    
    
    
    1.1
    
    
    
    1.2Total
    
    
    
    $
    3.9
    
    
    $
    3.5
   19




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##### Table of Contents



FY 2006
    
    
    
    FY 2005Q3
    
    
    Q2
    
    
    Q1
    
    
    
    Q4
    
    
    Q3
    
    
    Q2
    
    
    Q1Product Gross Profit % (1)
    
    
    23.9
    %
    
    
    22.6
    %
    
    
    22.8
    %
    
    
    
    22.2
    %
    
    
    23.7
    %
    
    
    22.0
    %
    
    
    21.8
    %Other Income (Expense) % (2)
    
    
    0.9
    %
    
    
    1.9
    %
    
    
    1.7
    %
    
    
    
    3.5
    %
    
    
    (0.5
    %)
    
    
    (0.3
    %)
    
    
    0.7
    %Product Gross Profit %
    
    
    24.8
    %
    
    
    24.5
    %
    
    
    24.5
    %
    
    
    
    25.7
    %
    
    
    23.2
    %
    
    
    21.7
    %
    
    
    22.5
    %
 
 (1)
    
    Calculated at net sales less purchase costs.(2)
    
    Includes vendor rebates, cooperative advertising income, freight billed to customers,
freight expenses, and direct shipping costs.  FY 2006
    
    
    FY 2005Q3
    
    Q2
    
    Q1
    
    
    Q4
    
    Q3
    
    Q2
    
    Q1Service Gross Profit %
    
    
    23.4
    %
    
    
    27.7
    %
    
    
    27.7
    %
    
    
    
    32.7
    %
    
    
    28.6
    %
    
    
    26.2
    %
    
    
    25.0
    %
 Operating Expenses:
 Third Quarter EndedDecember
    
    
    December24, 2005
    
    
    25, 2004Operating Expenses:Selling, Marketing, and Warehouse
    
    $
    2.3
    
    
    $
    1.9Administrative
    
    
    1.2
    
    
    
    1.2Total
    
    $
    3.5
    
    
    $
    3.1
  Other Expense:
 Third Quarter EndedDecember
    
    
    December24, 2005
    
    
    25, 2004Other Expense:Interest Expense
    
    $
    0.1
    
    
    $
    0.1Other Expense
    
    
    
    
    
    
    Total
    
    $
    0.1
    
    
    $
    0.1
  20




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##### Table of Contents



Taxes:
 Third Quarter EndedDecember
    
    
    December24, 2005
    
    
    25, 2004Provision for Income Taxes
    
    $
    
    
    
    $
    
  NINE MONTHS ENDED DECEMBER 24, 2005 COMPARED TO NINE MONTHS ENDED DECEMBER 25, 2004 (dollars in
millions):
 Sales:
 Nine Months EndedDecember
    
    
    December24, 2005
    
    
    25, 2004Net Sales:Product
    
    
    
    
    
    $
    30.3
    
    
    $
    27.0Service
    
    
    
    
    
    
    14.1
    
    
    
    12.7Total

    
    
    
    $
    44.4
    
    
    $
    39.7
    FY 2006 Nine Months
    
    
    
    FY 2005 Nine Months (1)Ended December 24, 2005
    
    
    
    Ended December 25, 2004Percent of
    
    
    Gross
    
    
    
    Percent of
    
    
    GrossNet Sales
    
    
    Profit % (2)
    
    
    
    Net Sales
    
    
    Profit % (2)Core
    
    
    84.8
    %
    
    
    25.3
    %
    
    
    
    86.8
    %
    
    
    24.3
    %Government
    
    
    2.4
    %
    
    
    0.7
    %
    
    
    
    2.8
    %
    
    
    2.3
    %Other
    
    
    12.8
    %
    
    
    13.8
    %
    
    
    
    10.4
    %
    
    
    14.2
    %Total
    
    
    100.0
    %
    
    
    23.2
    %
    
    
    
    100.0
    %
    
    
    22.6
    %
 
 (1)
    
    Certain prior year customer reclassifications have been made to conform with current channel definitions.(2)
    
    Calculated at net sales less purchase costs. 21




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##### Table of Contents



Gross Profit:
 Nine Months EndedDecember
    
    
    December24, 2005
    
    
    25, 2004Gross Profit:Product
    
    $
    7.4
    
    
    $
    6.2Service
    
    
    3.7
    
    
    
    3.3Total
    
    $
    11.1
    
    
    $
    9.5
     Operating Expenses:
 Nine Months EndedDecember
    
    
    December24, 2005
    
    
    25, 2004Operating Expenses:Selling, Marketing, and Warehouse
    
    $
    6.2
    
    
    $
    5.8Administrative
    
    
    3.6
    
    
    
    3.6Total
    
    $
    9.8
    
    
    $
    9.4
  22




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##### Table of Contents



Other Expense:
 Nine Months EndedDecember
    
    
    December24, 2005
    
    
    25, 2004Other Expense:Interest Expense
    
    $
    0.3
    
    
    $
    0.2Other Expense
    
    
    0.1
    
    
    
    0.2Total
    
    $
    0.4
    
    
    $
    0.4
  Taxes:
 Nine Months EndedDecember
    
    
    December24, 2005
    
    
    25, 2004Provision for Income Taxes
    
    $
    
    
    
    $
    
  23




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
 Cash Flows.
 Nine Months EndedDecember
    
    
    December24, 2005
    
    
    25, 2004Cash Provided by (Used in):Operating Activities
    
    $
    2,382
    
    
    $
    287Investing Activities
    
    
    (604
    )
    
    
    (512
    )Financing Activities
    
    
    (1,751
    )
    
    
    (338
    )
  
    
    Inventory/Accounts Payable: Our inventory decreased by $0.3 million from March 26,
2005 to December 24, 2005. As previously reported, our inventory at March 26, 2005 was
higher than we anticipated as product sales were below our expectations. Our inventory
increased by $1.7 million from March 27, 2004 to December 25, 2004 in preparation for
our historically strong product sales fourth quarter. Our inventory at December 24,
2005 was slightly higher than our inventory at December 25, 2004 primarily to support
the product sales growth anticipated for the fourth quarter of fiscal year 2006 compared
to the fourth quarter of fiscal year 2005. Our increase in accounts payable, as the
following table illustrates (dollars in millions), is primarily the result of the timing
of outstanding checks clearing:
 December
    
    
    December24, 2005
    
    
    25, 2004Accounts Payable
    
    $
    5.5
    
    
    $
    4.5Inventory, net
    
    $
    5.6
    
    
    $
    5.5Accounts Payable/Inventory Ratio
    
    
    0.98
    
    
    
    0.82
 
    
    Receivables: The increase in our accounts receivable at the end of our third
quarter of fiscal year 2006 compared to the end of the third quarter of fiscal year 2005
is due to sales growth in our current third quarter. We have continued to maintain
strong collections on our accounts receivable, reflected in our days sales outstanding,
as the following table illustrates (dollars in millions):
 December
    
    
    December24, 2005
    
    
    25, 2004Net Sales, for the last two fiscal months
    
    $
    11.4
    
    
    $
    9.9Accounts Receivable, net
    
    $
    8.0
    
    
    $
    6.7Days Sales Outstanding (based on 60 days)
    
    
    42
    
    
    
    41
   December
    
    
    December24, 2005
    
    
    25, 2004Term Debt
    
    $
    1.2
    
    
    $
    1.9Revolving Line of Credit
    
    
    4.0
    
    
    $
    4.7Capital Lease Obligations
    
    
    0.1
    
    
    $
    0.1Total Debt
    
    $
    5.3
    
    
    $
    6.7
 24




---



##### Table of Contents



Debt.
  FY 2006
    
    FY 2005Q3
    
    Q2
    
    Q1
    
    Q4
    
    Q3
    
    Q2
    
    Q1Excess (Shortage) EBITDA
    
    
    30
    %
    
    
    33
    %
    
    
    23
    %
    
    
    22
    %
    
    
    17
    %
    
    
    (20
    %)
    
    
    (16
    %)
  Unconditional Purchase Obligation.
   25




---



##### Table of Contents



OUTLOOK
     26




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 INTEREST RATES
   Fixed ChargeTier
    
    Coverage Ratio
    
    Term Loan A
    
    Term Loan B
    
    LOC1
    
    1.249 or less
    
    (a) Prime Rate plus .50% or
    
    Prime Rate plus .75%
    
    (a) Prime Rate plus 0% or(b) LIBOR plus 3.25%
    
    
    
    (b) LIBOR plus 2.75%2
    
    1.25 to 1.49
    
    (a) Prime Rate plus .25% or
    
    Prime Rate plus .50%
    
    (a) Prime Rate plus 0% or(b) LIBOR plus 3.00%
    
    
    
    (b) LIBOR plus 2.50%3
    
    1.50 or greater
    
    (a) Prime Rate plus 0% or
    
    Prime Rate plus .25%
    
    (a) Prime Rate plus 0% or(b) LIBOR plus 2.75%
    
    
    
    (b) LIBOR plus 2.25%
  FOREIGN CURRENCY
  RISK FACTORS
  General Economic Conditions May Have A Material Adverse Effect On Our Operating Results, Financial
Condition, Or Our Ability To Meet Our Commitments.
 We Depend On Manufacturers To Supply Our Inventory And Rely On One Vendor Group To Supply A
Significant Amount Of Our Inventory Purchases. If They Fail To Provide Desired Products To Us,
Increase Prices, Or Fail To Timely Deliver Products, Our Sales Could Suffer.
 27




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##### Table of Contents



Indebtedness.
 If Existing Shareholders Sell Large Numbers Of Shares Of Our Common Stock, Our Stock Price Could
Decline.
 Our Stock Price Has Been, And May Continue To Be, Volatile.
 
    
    Developments in our relationships with current or future manufacturers of products we
distribute;
    
    Announcements by us or our competitors of significant acquisitions, strategic
partnerships, joint ventures or capital commitments;
    
    Litigation or governmental proceedings or announcements involving us or our industry;
    
    Economic and other external factors, such as disasters or other crises;
    
    Sales of our Common Stock or other securities in the open market;
    
    Period-to-period fluctuations in our operating results; and
    
    Our ability to satisfy our debt obligations.
 We Expect That Our Quarterly Results Of Operations Will Fluctuate. Such Fluctuation Could Cause Our
Stock Price To Decline.
 
    
    Fluctuations in industrial demand for products we sell and/or services we provide; and
    
    Fluctuations in geographic conditions, including currency and other economic conditions.
 If We Fail To Attract And Retain Qualified Personnel, We May Not Be Able To Achieve Our Stated
Corporate Objectives.
 Changes In Accounting Standards, Legal Requirements and The Nasdaq Stock Market Listing Standards,
Or Our Ability to Comply With Any Existing Requirements or Standards, Could Adversely Affect Our
Operating Results.
 28




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##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures.
 Changes in Internal Controls over Financial Reporting.
 
 PART II. OTHER INFORMATION
 
 ITEM 6. EXHIBITS
  29




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##### Table of Contents



SIGNATURES
  TRANSCAT, INC.Date: February 6, 2006
    
    /s/ Carl E. SassanoCarl E. SassanoChairman, President, and Chief Executive OfficerDate: February 6, 2006
    
    /s/ Charles P. HadeedCharles P. HadeedChief Operating Officer, Vice President of Finance, and
Chief Financial Officer
 30




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##### Table of Contents



INDEX TO EXHIBITS
 (31)
    
    Rule 13a-14(a)/15d-14(a) Certifications
 31.1
    
    Certification of Chief Executive Officer31.2
    
    Certification of Chief Financial Officer
 (32)
    
    Section 1350 Certifications
 32.1
    
    Section 1350 Certifications
 31